A long-awaited code of conduct for foreign exchange traders has been published in a bid to restore trust in the world’s $5tn-a-day currency markets, with major banks, asset managers and trading venues expected to commit to it.
The global code, published by The Bank for International Settlements, took two years to draw up and followed a series of scandals in the foreign exchange markets, including attempted manipulation.
Its publication comes a day after BNP Paribas was fined $350m by the New York Department of Financial Services for “nearly unfettered misconduct”within its FX business.
Drawn up with input from the private sector, the code sets out 55 principles for “good practice” in the FX markets. It does not impose legal or regulatory requirements, though some bodies, such as the Paris-based ACI Financial Markets Association, have said they will require their members to commit to it.
Guy Debelle, deputy governor of the Reserve Bank of Australia and chair of the central bank working group on the code, said: “Ultimately the success of the code in promoting integrity and restoring confidence in the wholesale FX market lies in the hands of its participants.”
David Puth, chief executive of FX settlement system CLS and chair of the private-sector working group on the code, said it was important to ensure the principles were followed. “No regulation, no law, no penalty is strong enough to deter those who might choose to take advantage of others through dishonorable or illegal practices,” he said.
The code was welcomed by a broad range of participants in the FX markets.
Itay Tuchman, global head of FX trading at Citigroup, said he hoped all market participants “embrace the code, make sure their practices are consistent with the letter and spirit of it, and adhere to its principles”. He added: “Our intent is to fully sign the code in very short order.”
Seth Johnson, chief executive of NEX Group’s markets business, the owner of electronic FX venue EBS, said: “NEX Markets will adopt the principles and promote their use across our customer base.”
One particular area of controversy in the FX markets is the ‘last look’ practice that allows banks to back away at the last moment from trading at prices previously advertised to clients. In November 2015, Barclays was fined $150 million for the way it used last look.
The code said that banks should be transparent about how they use last look, and that the practice should not be used for “information gathering with no intention to accept the client’s request to trade”.
Transparency around last look was one of the code’s core principles, which started with a call on market participants to strive for the “highest ethical standards”.